NFA Raises Fees for Forex Brokers

Ever wonder why there are so few NFA regulated Forex brokers as compared with brokers regulated by CySEC, BaFin, ASIC and other regulatory bodies? I bet you thought it's because of the NFA's strict laws governing their Forex brokers, like limiting them to 50:1 leverage, and imposing difficult reporting requirements. And if you thought that, you might be right – until now.

Towards the end of November 2011, the NFA changed their payment policies, such that NFA abandoned their previous flat fee and is now demanding that regulated US Forex brokers pay around 2% of their gross income to the NFA. The NFA amended its bylaws related to dues so that there is no discrepancy about how dues will be demanded come February 1, 2012, the date that the new fees go into effect.

The amended bylaws state (among other things) that:

NFA will assess FDMs a fee of .002 on all order segments1 processed through NFA's Forex Transaction Reporting Execution Surveillance System (FORTRESS).

NFA will no longer assess FDMs a fee of .0002% on the notional value of each initiating (non-rollover) Forex transaction.

The annual membership dues for FDMs for which NFA is not the DSRO will increase from $13,500 to $25,000.

The annual membership dues for FDMs for which NFA is the DSRO will be established pursuant to a graduated schedule based on the FDM's annual gross revenue for the previous year (as indicated in the firm's most recent certified financial statement) as follows:

FDM Annual Gross Revenue	Dues Amount
$5,000,000 or less	$125,000
$5,000,000 to $10,000,000	$250,000
$10,000,000 to $25,000,000	$500,000
$25,000,000 to $50,000,000	$750,000
More than $50,000,000	$1,000,000

Put simply, FDM stands for "?Forex Dealer Member," which is another way to say any direct Forex broker that actually places the trades for its clients. In contrast, non-FDM NFA members are other companies such as IBs who pass clients to an FDM but don't place the trades directly. Dues for non-FDM members will be increased from $750/year to $2500/year. This fee almost seems reasonable as compared to what NFA regulated FDMs will be required to pay in the coming days – but at over three times the previous dues, it's hardly a bargain.

What does this mean for the future of the US Forex industry? Can we expect to see a decrease in the number of NFA regulated brokers, or the launch of fewer US Forex brokers in the coming year(s)? Or, will there be an increase in the number of IBs run by traders or entrepreneurs who aren't willing to meet the NFA's demands on FDMs? It may be too early to tell, but you can bet that I'll be keeping a close eye on the American Forex industry in the coming months.